Bush scolds Wall St., asks legal reforms

President proposes task force on fraud, longer prison terms

`Conscience,' `character'

Package not as strict as bills in Congress

July 10, 2002|By NEW YORK TIMES NEWS SERVICE

NEW YORK - President Bush came to Wall Street yesterday vowing to "end the days of cooking the books, shading the truth, and breaking our laws." But the legal reforms he advocated - from longer prison sentences for fraud to a new task force to prosecute corporate malfeasance - were not as far-reaching as some proposals gaining steam in Congress.

In his first extensive policy speech in months on a subject other than combating terrorism, Bush tried to quell a growing political storm by asking Congress to provide the Securities and Exchange Commission with $100 million in additional funding to beef up enforcement, far less than the increase some in Congress are demanding.

Bush also urged the nation's stock markets to adopt rules ensuring that a company's directors are truly independent.

"Self-regulation is important, but it's not enough," Bush said, striking a more aggressive tone than he did in the presidential campaign two years ago, when he urged less government intervention in the economy.

"In the long run," Bush told an invited audience of chief executives, investors and city leaders in a hotel ballroom just blocks from the New York Stock Exchange, "there's no capitalism without conscience. There is no wealth without character."

Bush's speech was striking for the harshness of the criticism he leveled at corporate executives - who include some of the biggest contributors to his presidential campaign, though he never mentioned a name or a company. But his speech was also notable for the reforms he declined to endorse or mention.

While chief executives praised the speech, saying it would help restore confidence in business, many money managers expressed disappointment that there were not more specific proposals for cleaning up Corporate America.

Bush's decision to call for longer prison sentences for anyone convicted of wire fraud or mail fraud appeared to be an effort to defuse a more far-reaching proposal gaining considerable support in the Senate to create a category of felony for any "scheme or artifice" knowingly used to defraud shareholders.

Bush's aides dodged questions yesterday about whether he would support that Senate bill. A senior White House official said yesterday that Bush "shares the goals" of the legislation but was troubled by its specifics.

Similarly, Bush said Monday that he was uncomfortable with a provision the Senate is considering that would set up an independent board to regulate the auditors of public companies.

Democrats criticized what they considered the limited nature of Bush's proposals, argued that the proposals created only the illusion of reform. Senate Majority Leader Tom Daschle of South Dakota urged Bush to endorse more drastic reforms that Democrats have now seized on as a key issue for the November mid-term elections.

Bush's prescriptions yesterday were more detailed and expansive than a 10-point plan he laid out in March. His new measures indicate a greater willingness to use the courts, and the threat of jail time, to rein in chief executives. But the potential effectiveness of his new proposals is difficult to judge, experts say.

Bush announced, for example, that the new Corporate Fraud Task Force would "function as a financial crimes SWAT team," words that created the image of a financial FBI empowered to swoop down on wrongdoers. But officials at the FBI and the Justice Department described the new task force as a coordinating body and a clearinghouse of information, with no direct responsibility for investigations and prosecutions, which would remain the purview of the FBI and the United States attorneys.

To some experts, including Philip B. Heymann, a former deputy attorney general teaching at Harvard Law School, the creation of the task force makes less sense than a steady, long-term emphasis on a particular kind of fraud.

Similarly, Bush's call to double the maximum sentence for various kinds of fraud might frighten some executives. But several former prosecutors said that increasing the odds that an executive would get caught was far more important.

"Someone who's about to lose their livelihood, their reputation, their income, and their standing in the community - it doesn't matter" if the maximum sentence is harsher, said one, Ira Lee Sorkin, who practices at Carter, Ledyard & Milburn in New York. "It's not an issue of the penalties."

Lawyers who have prosecuted or defended executives charged with committing fraud said the proposal to increase the staff and budget of the SEC could prove the most important effect of the president's proposal.

In a letter to Bush dated Monday, Harvey L. Pitt, the head of the SEC, said that "events have made it clear that we require significant additional resources" in the next fiscal year, and he asked for the $100 million increase that Bush endorsed yesterday. If approved, that would raise the funding for the agency in the 2003 fiscal year to $567 million, enabling the hiring of 100 staff members and the revamping of computer systems for enforcement.

White House officials regard yesterday's speech as important because of the symbolism of the event: a Republican president coming to Wall Street to call for reform, and using pretty unvarnished language to do so.

"The business pages of American newspapers should not read like a scandal sheet," Bush said. "The American economy today is rising, while faith in the fundamental integrity of American business leaders is being undermined. Nearly every week brings better economic news, and a discovery of fraud and scandal."